Good afternoon, and welcome to ikeGPS's FY 2024 First Half results Webinar. Today on the line, we have MD Glenn Milnes and CFO Brian Musfeldt. Before I hand it over to Glenn to get started, a reminder to participants, if you'd like to ask a question, please do via the Q&A function at the bottom of your screen. Glenn, over to you.
Thanks, Max, and thanks, everyone, for taking the time to join. What I'd like to do today is obviously run through our financial results, but given we had a performance update three or four weeks ago, I want to be respectful of time. We'll focus on the results themselves and also some Q3 updates in terms of items that have occurred in Q3 through to the current time. Then there's some other material which I think most people on the call are familiar with, which I won't go through. Moving to the result itself. As signaled in the performance update, the first half of the year was a real mix for us.
Our subscription revenue base and customer acquisition grew strongly and ahead of plan. We had, for the first time, a slowdown in terms of transaction revenue. And we'll talk a bit to the detail of the transaction business on the subsequent slides. The result was, for this first half period, a net loss of NZD 6.9 million, and that's against a prior calendar period of a NZD 1 million profit. And this change is due to two major things. So gross margin was NZD 2 million below the prior calendar period based on the transaction slowdown in the short term.
Then about a four million dollar movement in terms of foreign exchange gains, and also asset fair value movements in the prior calendar period. Balance sheet is still robust, and we'll talk a bit more about how we're managing to EBITDA breakeven through the coming periods. We talked to this in terms of revenue by segment. You see really solid growth in terms of the subscription side of the business. We expect to see the subscription revenue base grow very considerably over the next 12-18 months with the new IKE PoleForeman product release. We expect just the existing customer footprint to add NZD 6-NZD 7 million per annum to the subscription footprint. But you see the transaction drop off relative to the same period in 2023.
The long-term trend has still been strong in terms of transactions, but we've seen some big communications companies slow down temporarily. They're not lost. In fact, we expect a sort of a multi-year situation with them to evolve moving forward. And some detail here on the subscription revenue base. So you can kind of see the way that that is growing quite strongly with new customer wins and also with expansion across the existing customer footprint. The table here in terms of the key metrics across the business, so this is what we always report every quarter. Added another line, again, here around the total number of customers.
We've added 40 new logos and customers year to date, and we're currently sitting at just over 400 enterprise customers in North America. So just change gears before opening it up to questions. In terms of the Q3 updates. So through October and November, you know, probably three highlights just to talk to here today. The first and most impactful item is that the next generation IKE PoleForeman product has now been released for general market availability. This matters a lot. We've designed this product with a customer council that includes the groups, the logos you can see below on the lower part of this slide, but these are the biggest electric utilities and some of the biggest communications companies in North America.
We expect all of these companies to flip over into the next generation product. We've built it with them and for them, and it's gonna be meaningful in terms of like long-term recurring revenue. So, yeah, just from the existing footprint, we think we'll grow that subscription base by $6 million-$7 million per annum from some of these key groups. And we truly feel we've built a product here that the industry needs and that's quite differentiated from our two other competitors that offer similar products into the US market. The second item is that we have implemented and now fully executed a cost-down program. So, the implications of this are around a $4 million OpEx saving annually.
Regrettably, this has included releasing some team members from IKE, most of them in the US, in back office or service positions. We're continuing to build out our Mexico City office, which in some cases will be replacing some of these roles, but at sort of dramatically lower costs. This helps us to accelerate our program to EBITDA breakeven and cash breakeven, per the plan. Thirdly, just really delighted to have brought Roz Buick onto our board this quarter. Roz has had a pretty amazing career.
Originally, she's a New Zealander, but has been in the US for many, many decades, leading software businesses across Trimble and more recently, Oracle, in terms of their infrastructure, construction, and utility practice. So I'm just delighted to have Roz join us in terms of her experience in scaling software businesses focused on, you know, the enterprise space, be it construction, engineering, or the utility sector. And I'll pause there. We've got quite a number of slides that follow here around what IKE does and the market opportunity that we're addressing. We're very fortunate to be, I think, in the right place at the right time in terms of North America. It's just a vast, vast market seeking productivity solutions.
And IKE has three software products that we think fill an important space across the North American landscape. So, I won't go through those slides again. We did that in the most recent performance update. So I'll pause there and open things, Max, to questions.
Thanks, Glenn. Just a reminder to everyone on the call, you can ask a question via the Q&A function at the bottom of your screen. I will just pause for a moment to see if any questions come through. We've got one question here. Will, I'll just unmute you and allow you to talk. Go ahead, Will.
Yeah, thanks, Glenn. Cheers for the presentation. I was just wondering if you could run us through the composition of the 24% increase in subscription revenue between, kinda increased penetration and existing customers, new customers, and then price as well.
Yeah, sure. The... A lot of our growth is coming from our existing customer footprint, and I think that's, you know, we're excited by that. We, we think in terms of the 410 enterprise customers we're across, we're about 20% penetrated in terms of the opportunity. These are really large utility customers or communications groups. So a lot of that growth has come through just adding users, and adding footprint, particularly around the IKE Office Pro solution. You know, interestingly, we announced, about eight weeks ago, a new major subscription customer in California. It's a communications group, engineering about a 1 million assets.
And that's a new, you know, that's a new logo, which will represent probably NZD 1.5 million of subscription revenue over the coming 12-18 months. So there's been some important new logo wins, but a lot of the growth is coming from the existing footprint, and we do expect we expect that kind of pattern to continue, particularly with next-generation PoleForeman being released to market. That's just an upsell opportunity to our existing customer base, which is clearly preferable to chasing new logos.
Yeah. Awesome. Cheers. And, could you maybe talk through the strategy once you've kind of won a logo? What does that strategy look like in terms of converting, I guess, higher penetration?
Yeah. I mean, we've got a sales playbook. We've got specific account directors that are winning business for us in the first instance, and then we've got a team of account managers who are the folk that grow us inside of existing customers. So, you know, it's the classic bow tie sales process for a SaaS company, especially when you're selling to electric utilities. You've got everything up to winning a customer and deploying, and then you've got an entirely different sales strategy, which is around growing a business and making them as successful as possible with your products.
So, you know, we have a lot of experts in-house that are. We call them solution engineers, but they're folks that just know how to build networks, and they get in and help our customers be successful using our software, which is where, you know, the account development occurs.
... Yeah, perfect. And then last one from me, maybe if you could just touch on the transition to the next generation PoleForeman, and kind of how quickly you'd expect that, that transition from customers to occur.
Yeah, look, we're. As I say, we've built the product with a customer council that includes five of the 10 largest utilities in the country. And to begin with, we're converting those groups across to the new product and the new business model. And it's a really material change for us in terms of revenue per annum. You know, some of these very large utilities moving from, you know, $30,000 or $50,000 per annum to $250,000 or $500,000 per annum under the new product terms and conditions. And we expect all of them to come over, more or less. So, it'll take a little bit of time. We will end of life the legacy product at the end of calendar 2024.
So, there's some time for folks to come over, but we're gonna, you know, there's so much benefit out of the new product set. We think customers will come over reasonably quickly.
Awesome. Thank you. That's, that's all from me.
Thanks, Will. James, do you want to go ahead? You're now live.
Yeah. Just got two questions, with regard to the Google relationship. Yeah, first of all, just when do you think it will generate revenues for IKE? And sort of what does that look like? And then, could the relationship with Google take you into other markets? Yeah, obviously, cognizant that 99% of your revenues are U.S.-based at the moment.
Yeah. So we're in proof of concept programs at the moment with customers.
Okay.
That sets us up for, you know, going to market with Google into, in calendar 2024. And I think obviously, while they've got a global footprint, our real focus is on the problems in the North American electric utility market. So that's where we'll be focusing with them.
Thanks, Will, James, for that question. Next question: Can you clarify the timelines towards EBITDA breakeven?
Yeah. You know, so I think our current plans would say that we believe that 2025 as a fiscal year will be a breakeven year. You know, that'll be pushed by the strength of the addition of the IKE PoleForeman product coming in online during that year as the customers adopt. So, we would expect it to be, you know, we will be officially probably breakeven in the back half, and that the whole year should be pretty close to breakeven neutral.
Thanks, Brian. Next question: How are you building awareness inside accounts, and should we be seeing stronger growth inside accounts?
Yeah, yeah, that's the key thing. We focus really hard on growing accounts, and it does take time. We've got a lot of good case studies now of customers that have started small and have grown to be quite significant. Crown Castle is a good example. We started regionally with Crown Castle. We managed to get in front of their corporate team, and they've now rolled us out across the entire Crown Castle network. They're the biggest shared infrastructure group in the country. Have a whole office dedicated to IKE coordination in terms of their business. So yeah, we work really hard at account development, and like most of our growth is coming from account maturity and account growth.
You know, you can never be too good at it, but we focus pretty hard on it.
Thanks, Glenn. Next question: How should we be thinking around the timing of transaction volumes and the type of projects that are likely to lead?
Yeah, I mean, we've honestly sort of had a perfect storm in the last two quarters with several high-value customers from, if you're looking at prior calendar period, that for unrelated reasons, just slowed down their engineering for different reasons. And these customers aren't lost. I mean, we have close relationships with each of them, and they're all communicating sort of a multi-year commitment to IKE and also to their network development programs. So we do expect all of them to come back. It's hard to know exactly how fast and when, but we're pretty optimistic in terms of their ultimate sort of stickiness for use of the IKE platform.
Thanks, Glenn. Next question. Both, you did an acquisition which offers AI function, functionality not long ago. Have you seen tailwind from AI hype, or is this insignificant in the context of the whole business?
Oh, so that's a really good question. You know, AI became, it became a really, almost a dirty word. There was so much hype and overpromise and under-delivery from AI generally, especially in the infrastructure sector. I think what you're seeing with generative AI and some of the effectiveness of, of things like ChatGPT, it's completely unrelated to what we do, but it's provided real credibility that, you know, this stuff can work, and it can deliver lots and lots of value. If you look at what Microsoft's doing with Copilot and, and, and sort of similar examples, I think it's giving a lot of credibility to, to, to AI. And, and that, that, that does have some kind of flow on for us as we're positioning, you know, automation for, for, for lots of this work that engineers are doing.
So we're really optimistic about the potential for our IKE Insight capability. We've built it. It works. It can save infrastructure companies a lot of time and a lot of money. So we're, you know, working pretty hard to commercialize the IKE Insight capability at the moment. And part of that's, you know, our work with Google, processing all of their Street View data.
Thanks, Glenn. How are transaction revenues tracking this quarter?
The quarter to date, they've remained relatively subdued if you're looking at prior calendar period. But the indications are quite strong, both in terms of the existing customer footprint, plus some, some sales pipeline opportunities that are quite significant.
Thanks, Glenn. That concludes the Q&A section. I'll just hand it back to you for some closing remarks.
Great. Thanks, Max. Thanks again, everyone, for taking the time. I know it's been two conference calls in short succession, but I appreciate everyone joining. And obviously, we're both Brian and myself are accessible anytime, so please, either email or give us a call if there's follow-on questions.
That concludes this webinar.